Geo Energy signs on new offtake of 7mt of coal

By Romel S. Gurky

SGX-listed Geo Energy Resources Limited, an integrated Indonesian coal mining group, announced Monday that the group has amended its long term ?life of mine? (LOM) coal purchase agreement with Engelhart CTP (Singapore) Pte Ltd (ECTP) to supply more 4,200 GAR thermal coal for the entire lifespan of PT Sungai Danau Jaya (SDJ) coal mine in South Kalimantan subject to the terms of the agreement.

Geo said in a statement that under the terms of the LOM agreement, the group will supply 4 million tons of coal till January 31, 2017 and 7 million tons of coal from February 1 to December 31, 2017. SDJ coal mine contains 42.4 million tons of 4,200 GAR high quality thermal coal.

ECTP operates an international commodity trading business in energy, grains, LME metals and other ?hard commodities? trading, currently employing about 750 people in 34 offices in 19 countries.

Following a previous agreement signed on July 5, 2016, the Geo secured two offtake agreements (contracts) with ECTP (previously known as BTG Pactual Commodities (Singapore) Pte Ltd) to supply 4 million tons of coal for a period of 7 months due in January 2017 and an additional 6 million tons of coal for a period of 12 months due in December 2017.

On a positive note, the Geo said it is on track to deliver 4 million tons of coal to ECTP by January 2017. Due to escalating demand for coal in China, ECTP has further requested to offtake 7 million tons of coal from February 1 to December 31, 2017 instead of 6 million tons of coal agreed earlier.

Since completing the acquisition of the remaining 34 percent stake in SDJ, Geo said it has commenced coal production at SDJ in December 2015. The group signed the LOM agreement with ECTP in July 2016 where the first shipment of 400,000 tons of coal from SDJ was delivered to ECTP by end July 2016. After which, the group has consistently delivered an average of 600,000 tons of coal since August 2016. By the end of November 2016, the group has completed shipments of 2.8 million tons of coal to ECTP.

On December 16, 2016, Geo said it has received shareholders? approval at an extraordinary general meeting (EGM) to complete the acquisition of a 98.73 percent stake in Tanah Bumbu Resources (TBR) coal mine in South Kalimantan. The TBR coal mine is strategically located beside SDJ, harnessing synergies like close proximity to jetty and co-sharing of dump sites which would generate substantial cost savings for the group. The TBR coal mine will boost another 44.4 million tons of 4,200 GAR coal to Geo Energy?s total coal reserves. As a result of improving demand combined with improvement in coal prices (as compared with year 2015), Geo said it has targeted to increase its annual coal production and sales to 10 million tons by 2017 subject to the start of TBR production.

Indonesia?s President Joko Widodo?s administration harbour plans to increase Indonesia's power generation capacity by 35GW in 2019 to drive the country's economic growth and channel power to remote regions that have no access to electricity. In support of this program, the Group incorporated PT Gebo Tebo Power Inti on March 8, 2016 to explore opportunities in the power generation business. The amended LOM agreement with ECTP would also see the group setting aside 1 million tons of coal for domestic sales and fulfil Indonesia?s Domestic Market Obligation (DMO), it said.

Commenting on the revised LOM agreement, Tung Kum Hon, Group Chief Executive Officer of Geo Energy said,: ?The sales of 7 million tons of coal to ECTP starting from February to December 2017 is expected to yield our Group more than US$270 million in revenue next year based on the current Indonesian Coal Index (ICI) price for 4,200 GAR coal of approximately US$40.00 per ton.?

?Following our shareholders? approval at the EGM, our group will look forward to kick-starting production at TBR coal mine as soon as the acquisition can be completed and would make a further announcement in due course,? he added.

He also said that as Geo aims to become one of Indonesia?s top coal producers, the group would continue to seek out acquisition opportunities in the region to replenish its coal reserves and to enhance shareholder value.

Editing by Reiner Simanjuntak